Anz Commodity Trading Pty Ltd v. Excellence Raise Overseas Ltd and Others

HCCL 4/2017

[2020] HKCFI 1410

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 4 OF 2017

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BETWEEN

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D E C I S I O N

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1.This is my decision for acceding to Plaintiff’s application for an order in terms of paras 3 and 5 of its Summons filed on 9 March 2020, and to adjourn the remainder of the Summons sine die with liberty to restore.

2.The background of this case can be seen from the Decision of M Chan J dated 9 July 2019 at §§2-5 (“Decision”).

3.The event which gave rise to the Summon was the disposal of the 1,810,000 shares in UBP[1] (“Shares”) which were held by the 10^th Defendant and the subject matter of a proprietary injunction order grant by DHCJ Lam SC in favour of the Plaintiff on 13 November 2018 (“Order”).  Paras 2(2) and (3) of the Order were in the following terms :

“(2) Until further order of the Court, the Intended 10^th Defendant must not dispose of, deal with or diminish the value of any of the sum of USD3,263,636.36 remitted to it by the 3^rd Defendant on or about 7 November 2016 into its DBS bank account in Hong Kong (A/C 7883710630) and the traceable fruits and proceeds thereof (inclusive of any interest or profits earned), including the 1,810,000 shares owned or beneficially owned by it and registered in its name or in the name of a nominee or custodian in United Biopharma Inc (the “High Express Shares”) or, if the High Express Shares have been sold or agreed to be sold (whether before or after the date of this Order), the net proceeds of sale or any replacement or new shares whether by way of exchange or cash consideration in any new entity (the “Overseas ListCo”).

(3) The Intended 9^th Defendant in the case of the Jolly Admire Shares and the Intended 10^th Defendant in the case of the High Express Shares are permitted (notwithstanding paragraph 2(1) and 2(2) above) but subject always to paragraph 5 below to sell the Jolly Admire Shares and High Express Shares provided that the following conditions are satisfied:

(a) Any sale of the Jolly Admire Shares or the High Express Shares must be a sale of the entirety of those shares with not less than 7 days prior written notice to the Plaintiff;

(b) The Plaintiff has confirmed in writing its acceptance that the sale is at full market value (provided that this condition will fall away if this written confirmation is unreasonably withheld or delayed for more than 7 days after receipt of written notice from Jolly admire);

(c) The Intended 9^th Defendant in the case of the Jolly Admire Shares and the Intended 10^th Defendant in the case of the High Express Shares has appointed jointly a Firm of Solicitors (which must be solicitors practising in Hong Kong) which has undertaken to hold the net proceeds of any sale on the terms of this Order (“the Undertaking”);

(d) Any sale is on terms that the entire proceeds of sale will be paid in Hong Kong to the Firm of Solicitors bound by the Undertaking; and

(e) On completion of any sale, the entire proceeds of sale must be paid to the Firm of Solicitors bound by the Undertaking and thereafter promptly paid into Court by the Firm of Solicitors to be held until trial or further order.”

4.On the evidence before the court, and it was not controversial, the Shares were converted into shares in UBP Cayman[2] sometime in June 2019 due to the restructure of UBP.  References hereunder to the Shares should be understood as referring to the equivalent shares in UBP Cayman after the conversion.  There was a complication in the facts which arose by reason of two further acquisitions of UBP shares by the 10^th Defendant (“High Express”) after the Shares were acquired in November 2016.  The additional acquisitions were made in August 2017 and August 2018 resulting in a total shareholding of 6,594,000 shares in UBP by High Express.

5.The Shares were part of the total shareholding of 6,594,000 UBP shares held by High Express.  The subsequent conversion into shares in UBP Cayman applied to the entire shareholding.

6.According to an excerpt of the Register of Members of UBP Cayman as of 31 July 2019, High Express held 2 lots of shares, namely, the 6,594,000 shares (“1^st Lot”) and another 410,290 shares (“2^nd Lot”) which were apparently acquired on 15 July 2019.

7.It was undisputed that on 3 October 2019, High Express had disposed of the lion part of its shareholding in UBP Cayman by 9 transfers, leaving a balance of 1,965,000 shares.  The Plaintiff said that this disposal, which must have involved at least part of the Shares, was in breach of the Order.  In further breach of the Order, said the Plaintiff, no prior notice was given to it in respect of the disposal and no arrangement was made for the payment of the sale proceeds to a firm of Hong Kong solicitors as required under the Order.

8.High Express sought to answer the Plaintiff’s case by, firstly, arguing that the Plaintiff’s tracing claim against it had no leg to stand on.  I agree with the Plaintiff that in light of the Decision by which the court continued the Order after a contested hearing[3], it was not open to High Express to launch a collateral attack against the Decision.  I therefore reject this argument of High Express.

9.Secondly, High Express argued that there remains more than 1,900,000 shares in UBP Cayman under its name, which exceed the amount of shares covered by the Order.  There were 2 key components in this argument.  Firstly, it was said that the shares held by High Express were not identified by any certificate number, and were indistinguishable or mixed together.  Secondly, there was no sufficient evidence to show that the 5,038,790 shares disposed of in October 2019 came from the 1^st Lot as contended by the Plaintiff. 

10.With respect, the general point that High Express is still holding more than 1,810,000 shares is no answer to the breach of the Order if the disposal involved any part of the Shares, and in failing to notify the Plaintiff prior to the sale and to make the prescribed arrangements to secure the sale proceeds.  

11.Further, I agree with the Plaintiff that it is important to preserve the Shares which were arguably traceable to the Plaintiff’s money. One obvious reason is that the Plaintiff would not have the risk of competing for the Shares with the creditors of High Express.

12.As regards the adequacy of the evidence showing that the disposed shares came from the 1^st Lot, for obvious reason the Plaintiff had to rely upon the material disclosed by High Express.  I incline to agree with the Plaintiff that by looking at the 2 excerpts from the Register of Members of UBP Cayman dated 31 July and 3 October 2019, the company was differentiating the 2 Lots of shares by reference to the “Date of Entry as Member”.  The 1^st Lot was dated 13 June 2019, which was likely to be the date of conversion, and the 2^nd Lot was dated 15 July 2019.  Further, the October excerpt showed that the 9 transfers were all related to the 1^st Lot.  I agree with Mr Chan, who appeared for the Plaintiff, that some of the transfers could have been made against the 2^nd Lot but were not.  It fortified the proposition that the company was not treating the 2 Lots of shares as mixed or indistinguishable.

13.On the issue whether the 2 Lots of shares should properly be regarded as indistinguishable, I also agree with Mr Chan that it is a mixed question of fact and law.  Given the treatment or record kept by the company, I am unable to agree with High Express that the shares it owned were indistinguishable. 

14.In the premises, I also reject the second argument of High Express.

15.Given the breaches of the Order and the absence of any real answer by High Express, I see no reason not to grant the discovery relief sought under paras 3 and 5 of the Summons so that the Plaintiff can be given an opportunity to make an informed decision on how it can best protect its interest in the Shares or their present equivalent.

16.The information sought under para 3 of the Summons had been in existence for a long time and I see no sufficient reason to allow High Express more than 7 days to provide the same on the ground that Mr James Chui, the person in control of it, is in Canada.  Distance is no longer a real obstacle with the advancement of technology.

17.In respect of para 5, the Plaintiff had agreed to the qualification of documents sought as follows:

“The 10^th Defendant do disclose within 3 days of the order made hereon any prospectus and/or other document relating to the exchange of shares in Cayman UBP in about June 2019 and any current or prospective financial statements of Cayman UBP in its possession, custody or power; and”

18.The court was informed by Mr Lin, who appeared for High Express, that the financial information sought is price sensitive information due to an intended application to list the company in Hong Kong, and that Mr Chui had signed a non-disclosure agreement relating thereto[4]. In response, the Plaintiff had agreed to provide an undertaking not to make use of the financial information disclosed except for the purpose of this action and to provide High Express with a list of the persons who will be given access to the information.  I believe that the undertaking will sufficiently address the concern of High Express.

19.For these reasons, I grant the order as indicated in para 1 above: (a) subject to the Plaintiff’s said understanding; (b) with modification of para 5 (see para 17 above); and (c) with liberty to apply.  I should make it clear that the liberty is not to be misused.  The parties must act reasonably to resolve any issues which may arise in the compliance of the court’s order.  Unreasonableness may be penalized on costs. 

20.I also make an order nisi that the costs incurred on the Summons to date be paid by High Express, to be taxed if not agreed. 

Mr Derek J Y Chan, instructed by Holman Fenwick Willan, for the Plaintiff

Mr Kenny C P Lin, instructed by Wai & Co Solicitor, for the 9^th and 10^th Defendants

[1] United BioPharma Inc, a Taiwanese listed company.

[2] United BioPharma (Holdings) Co Ltd, a Cayman Islands company.

[3] See in particular, paras 8 to 10 of the Decision.

[4] Mr Lin accepted that the agreement would not inhibit the court from granting the relief sought by the Plaintiff.